IRS Is Scaling Back The Fight Against Financial Crime

The
National Debt Clock hangs on a wall next to an office for the
Internal Revenue Service near Times Square in New
YorkThomson
Reuters

NEW YORK (Reuters) - Budget
pressures at the Internal Revenue Service's Criminal
Investigation Division are cutting the number of investigators
there to the lowest level in four decades, and officials say the
changes are forcing the division to scale back its fight of
financial crime.

It will also hurt government coffers, they add, since IRS probes
can bring in hefty fines.

The division investigates a variety of financial misconduct, from
tax fraud and money laundering to identity theft, narcotics and
counter-terrorism. Federal prosecutors around the country often
seek help for cases involving money issues.

Recent high-profile investigations include probes into tax
evasion by Credit Suisse Group AG <csgn.vx> and Sudan, Cuba
and Iran sanctions violations by BNP Paribas <bnpp.pa>,
which resulted in settlements of $2.5 billion and $9 billion,
respectively. IRS Criminal Investigation has also been involved
in public corruption cases such as the conviction of Jesse
Jackson Jr., a former U.S. Representative and the son of civil
rights leader Reverend Jesse Jackson Sr., for misusing campaign
funds.

"The reason they are so important is because of the tax angle,"
said Ronald Machen Jr., the U.S. Attorney for the District of
Columbia, adding that he wished there were more agents. "When you
are looking at individuals who steal money, they are always going
to want to claim less on their taxes than they have in their
various bank accounts."

According to data seen by Reuters, the division expects to see
the number of special agents decline to 2,130 by fiscal year 2016
due to attrition, down 13 percent from this year. That is despite
hiring 48 agents this year. At its peak in 1995, the agency had
3,358 agents.

Richard Weber, the division’s chief, carries around a
pocket-sized, laminated card with a bar graph showing how his
agency has been shrinking over the years as its budget fell.
Weber in an interview said his goal is to get the number of
special agents back up to at least 3,000.

"We cannot continue to lose agents to retirement and not replace
them. We are at the same staffing levels that we were at in
the 1970s. This is not sustainable," he said.

IRS Commissioner John Koskinen in a separate interview said the
lack of resources means the unit is starting fewer
investigations. "There are fewer cases that you can take,"
Koskinen said. He did not give specific numbers.

Overall, Koskinen estimates, the IRS, through criminal
investigations as well as other activities, like audits and
collection efforts, brings in $50 billion to $60 billion a year
for the government, or 5 to 6 times its budget of about $11
billion. He did not say how much of that was due to the
investigative unit, as opposed to audits carried out by another
IRS group.

TEA PARTY

The rise of the Tea Party movement, which professes minimalist
government, and an IRS scandal, has made the agency's life
tougher.

The IRS saw its budget cut by about $600 million last year as a
result of the sequester, the automatic spending cuts that were
triggered when congressional negotiators failed to reach a budget
deal. Koskinen said most other agencies saw their budgets return
to pre-sequester levels in the 2014 federal budget, but not the
IRS.

The IRS also last year revealed that it gave extra scrutiny to
conservative "Tea Party" groups applying for nonprofit status.
Republicans responded with a storm of criticism and budget cuts,
saying the agency was using its budget improperly.

Last month, the Republican-controlled U.S. House of
Representatives voted to cut the IRS' enforcement budget in 2015
by over $1 billion.

Koskinen estimates the latest budget cuts would cost the
government somewhere between $3 billion and $5 billion of
additional revenues.

A proposal in the Senate, controlled by Democrats, would increase
the IRS enforcement budget by $31.6 million -- still $318 million
below the Administration's budget request.

Weber got some relief this year. After a hiring and travel freeze
over the past two years, the division got approval to hire 48 new
agents for 2014. In comparison, the FBI got approval to hire
2,000 new agents this year.

Half of the 48 IRS criminal investigation agents are on the first
leg of a 16-week training at the Federal Law Enforcement Training
Center in Georgia. Once the students graduate, they are assigned
a field office, but it can take up to two years for any of them
to lead a complex case on their own, Weber said.